A high rate of inflation within a country will tend to ____ the value of its currency with respect to the currencies of other countries that are experiencing lower rates of inflation.

Question

Quizplus · Accepted Answer

High inflation reduces the purchasing power of a currency and hence, leads to a decrease in demand for that currency. This results in a depreciation of the currency in comparison to currencies of other countries that are experiencing lower rates of inflation. Thus, a high rate of inflation within a country will tend to decrease the value of its currency with respect to the currencies of other countries.

A High Rate of Inflation Within a Country Will Tend